Friday, June 15, 2012

Business Analysis - Practitioner - Opportunities Presented by Growing Resource Demand



A cover story article published in McKinsey Quarterly stresses the threat of dwindling natural resources under the wake of an expected expansion of 3 billion middle class consumers, largely within the emerging markets of China and India, within the next three decades. This resource scarcity will create challenges, such as high and unpredictable resource prices, for business around the globe.

Similar fears have occurred throughout history with innovation stepping in to save the day.

[Authors say]
However, the size of today's challenge should not be underestimated as we enter an era of unprecedented growth in emerging markets. Our recently completed research on the supply-and-demand outlook for energy, food, steel, and water suggests that without a step change in resource productivity and a technology-enhanced expansion of supply, the world could be entering an era of high and volatile resource prices. Nothing less than a resource revolution is needed” (Dobbs, Oppenheim, and Thompson 1).

The timing of this rapid expansion of demand is also troublesome. Currently some natural resources are already susceptible to dramatic fluctuations despite constant technological developments that attempt to address growing demands.

The article suggests that shortages will not be solved by massive investment in supply generation. The recommendation is to invest in resource productivity opportunities. In other words businesses must invest in using resources more efficiently.

[Authors say]
“After a century of cheap resources, few institutions, in either the private or the public sector, have made resource productivity a priority. In a global economy characterized by greater resource scarcity, companies, consumers, and countries that break with old patterns and take the lead on resource productivity should strengthen their competitive and economic position” (Dobbs, Oppenheim, and Thompson 1).

Included in this article is a systematic approach that is recommended companies take when addressing opportunities. A company must pursue growth opportunities and boost internal efficiency. These suggestions are not limited to investments that apply to the business’s internal operations alone. Suggested investments also included providing consumers, which includes other companies, with goods that use resources more efficiently. Risk management is included in the approach. In this process business need to develop a clear understanding of their unique resource risk. This includes a full analysis of the supply chain, and a clear understanding of potential regulatory changes.

To close out the suggestions directed at the business community the article listed four priority actions. These actions were indicated by their research to have the largest growth opportunity as well as positive impact on resource demand. Listed from most to least effective: Improving energy efficiency in both residential and commercial buildings,reducing food waste, developing the next generation vehicles, and utilizing the benefits of high strength steel. I am sure we are all familiar with or have heard of these ideas before. It is through these four basic ideas, coupled with investment and technological advancements, that the authors believe a majority of the profits for companies and impact on resource demand will be derived.

4 comments:

  1. Thanks for your post. It is really interesting about natural resources, not only in one company but also in so many businesses around the world. As we see everything around us, it is such of waste. For example, we use tons and tons of the plastic bags from grocery stores and end them in the trash. Why don't we recycle and use the green bag instead? Or we can use the bag that can dissolve in the air after we use. About all vehicles on the road, we have been used a big amount of oil and gas. Every single person uses one car instead of one bus or carpool. Traffic, pollution and waste much more natural resources. If one of each company has a campaign to help citizens knowledge about the limit of natuarl resources and have a better strategy to attract people with new product, it will help environment. It is really hard to increase natural resources's demand; but it will be easier to save in using those resources.

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    1. You are exactly right. That is what the article seems to be stressing the most. Business opportunities exist largely in resource productivity as opposed to increasing resource supply. My practical standpoint is that even if technology existed that could extract and deliver natural resources to consumers at virtually no cost,one must take into consideration that natural resources are finite. So investment in utilizing resources more efficiently is not only business smart but moral.

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    2. It is interesting to see that in an economy that is growing and how fast technology is changing that there isnt a better way to conserve on resource productivity. I agree with Ngan Nguyen's post of companys helping knowledge individuals on this matter.

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  2. I feel most companies will limit the amount of knowledge they share to the extent that it makes an individual want to invest(purchase) what they are selling. They feel individuals have the responsibility of educating themselves. Beyond a company in the business of education (such as UHCL)that seems fair. However, as we are learning, companies that invest in social responsibility (such as educating others)perform better in the long run. So it will be interesting to see what happens here.

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